Key takeaways
Court rejects unjust enrichment in JV dispute
Express contractual terms override restitutionary claims.
Clear drafting remains critical for joint ventures
Avoid ambiguity to reduce litigation risk and uncertainty.
Commercial agreements must anticipate future conflicts
Robust clauses protect parties from costly disputes.
This was a dispute relating to mergers and acquisitions (M&A) advisory work carried out in respect of the merger of two crude oil tanker operators.
The Court dismissed the advisory company’s claim in restitution for more than US$11.5 million for services it provided in connection with the transaction which it claimed went beyond the scope of the parties’ agreement.
The Court held that the services provided by the advisory company fell within the scope of the parties’ agreement and that, even if any of those services did not, any claim in unjust enrichment was excluded by the express contractual provisions.
The decision is of particular interest to those involved in maritime and other M&A transaction – including joint ventures within the shipping sector. It is also of general interest for the Court’s detailed analysis of the applicable legal principles to a claim in restitution, including whether and to what extent an unjust enrichment claim may be maintained where there is an underlying contract establishing the parties’ rights and obligations, including remuneration.
The background facts
The judgment is lengthy and deals in detail with the factual evidence. For the purposes of this article, however, the essential facts were as follows.
The parties
The claimants provide advisory and capital-raising services in the maritime sector. The defendant, Euronav N.V, is a Belgian-incorporated company and one of the world’s largest crude oil tanker operators. In 2018, Euronav merged with Gener8, another of the world’s largest crude oil tanker operators at the time. The merged entity is known as CMB.Tech NV. At the time of the merger, Euronav was dual listed on the New York Stock Exchange and Euronext Brussels. Gener8 was listed on the NASDAQ stock exchange in the US.
The claim
The claimants brought a claim in restitution for quantum meruit, alleging that Euronav was unjustly enriched by the receipt of services which fell outside the scope of an advisory agreement between the claimants and Euronav dated 19 July 2016 (Advisory Agreement).
The claimants alleged that they were engaged under the Advisory Agreement to provide limited services, principally the development of an acquisition model to assist Euronav in studying a possible acquisition of Gener8. The claimants contended that, over the course of the transaction, they went on to provide a broader range of M&A advisory services (including deal structuring, valuation advice, negotiation support, and due diligence coordination) which were not within the scope of the Advisory Agreement.
The claimants alleged that these services were provided on the basis of a shared understanding that Euronav would pay a further fee, to be agreed or otherwise assessed at a reasonable market rate. The claimants claimed unjust enrichment, asserting that the basis for the provision of the additional services had failed and/or that Euronav had freely accepted the benefit of those services with knowledge that the claimants expected to be paid.
The defence
Euronav denied that any of the services provided by the claimants fell outside the scope of the Advisory Agreement. It argued that the Advisory Agreement, properly construed, encompassed all of the services the claimants performed.
Alternatively, even if some services were outside the contractual scope, the claim in unjust enrichment had to fail as a matter of law because the Advisory Agreement expressly provided for any variation of the Agreement as to the scope of the services to be in writing and also incorporated a “no oral modification” clause.
Euronav also denied that there was any joint understanding that the claimants would be entitled to a further fee for any additional services and maintained that any suggestion of further payment was always understood to be discretionary (Euronav had, in fact, offered a discretionary bonus of US$1 million after the merger was concluded).
The dispute
The claimants had been engaged by Euronav with regard to two earlier transactions prior to the Gener8 deal. The parties had, therefore, already developed a working relationship before the events in question.
Between late 2015 and early 2016, in the lead-up to the merger with Gener8, the claimants were one of a number of advisory firms pitching their services to Euronav. Negotiations between the claimants and Euronav continued until July 2016 and included discussion of the terms of a draft Advisory Agreement, including the fee structure, which were revised and amended by the parties before a final version was agreed.
The final version of the Advisory Agreement was signed by the claimants on 20 July 2016 and signed and executed by Euronav on 26 July 2016. Thereafter, there were numerous discussions and exchanges between the parties with regard to the claimants’ fees up until the merger took place.
On 13 June 2018, the merger between Euronav and Gener8 was concluded and publicly announced. The claimants and Euronav subsequently disagreed on what fees were rightfully due to the claimants.
Applicable legal principles
Contract interpretation
Under English law, evidence of pre-contractual negotiations between the parties is generally inadmissible for the purposes of drawing inferences about what the contract should be understood to mean. This is because, in general, parties’ positions will change and diverge during negotiations. It is only the final contract which records a consensus between the parties.
Unjust enrichment
A claimant that believes a defendant has unfairly benefited at the claimant’s expense may seek restitution in order to reverse that unjust gain or enrichment.
The Court must consider the following:
Has the defendant benefited in the sense of being enriched?
Was the enrichment at the claimant’s expense?
Was the defendant’s enrichment at the claimant’s expense unjust? And
Are there any available defences?
One example of unjust circumstances recognised by English law is failure of basis. This is when a benefit has been conferred on a joint understanding that the recipient’s right to retain it is conditional. If the condition is not fulfilled, the recipient must return the benefit. There must, however, be a joint understanding. If it was only one party’s understanding, then there is no unjust enrichment claim.
A possible alternative to failure of basis is free acceptance. This is where a defendant is held to have benefited from the services rendered if he, as a reasonable man, should have known that the claimant who rendered the services expected to be paid for them, and yet did not take a reasonable opportunity to reject the proffered services.
Relationship between unjust enrichment claim and underlying contract
An unjust enrichment claim may be impermissible where there is an existing contract between the parties either because it is inconsistent with one or more express terms of the contract or with the scheme of the contract as a whole.
One express provision that may be inconsistent with an unjust enrichment claim is a valid “no oral modification” clause in the contract. The English Court will uphold such a clause as reflecting what the parties have agreed and in recognition of the fact that oral discussions can give rise to misunderstanding and crossed purposes.
Where work is done outside the scope of the contract, different considerations may apply. However, this will depend on the effect of the contract as a whole. The key issue will be whether the contract provides a complete statement of the circumstances in which the claimant is to be paid or whether a term should be implied into a contract for services to pay a reasonable sum where no sum is fixed by the contract.
The Commercial Court decision
The Court rejected the claimants’ argument that the parties’ communications leading up to the conclusion of the Advisory Agreement were relevant and admissible because they showed that the purpose of the Advisory Agreement was to appoint the claimants to a limited role rather than as a full M&A adviser.
In the Court’s view, the exact scope of the claimants’ role was not an established aspect of the aim of the transaction. Rather, it was one of the terms under discussion during the course of the negotiations which led up to the agreement on the services to be provided by the claimants, as reflected and defined in the Advisory Agreement. In any event, the Court did not think that the parties’ negotiations led to the conclusion contended by the claimants.
The Court also found that most if not all of the work done by the claimants fell within the scope of the Advisory Agreement. Furthermore, the terms of the Advisory Agreement left no room for a claim in restitution. This was partly due to the “no oral modification” clause.
However, the Advisory Agreement additionally contained two provisions specifically directed towards the possibility of expanding the scope of the services to be provided. These provisions stated (after the list of Services to be provided):
“The above list is not exhaustive and subject to change as agreed upon in writing by both Parties.”
and:-
“The scope of the Services may be revised from time to time by written mutual consent of the Parties.”
Those provisions reflected a clear consensus that if additional services were required, then a written document would be needed. That would provide both parties with clarity about the scope of the additional services and the terms on which they were to be provided.
Given these provisions, it was not possible to argue that the claimants performed additional services outside the scope of the contract. Rather, these provisions meant that any additional services formed part of the subject-matter of the Advisory Agreement, which stipulated how any such services were to be addressed. On that basis, it was not possible to find there was any joint basis or understanding of the type alleged by the claimants that could found a claim in restitution.
There were also no grounds for a claim for additional remuneration on the basis of free acceptance. The evidence indicated that Euronav considered the Advisory Agreement to govern all the work being provided and only envisaged that a discretionary bonus might well be merited at the end of the transaction.
By providing any additional services without negotiating a written alteration to the list of Services (and consequent revised remuneration provisions), the claimants took the risk that those services would be unremunerated save via such bonus as Euronav in its discretion might agree to pay.
The claim was dismissed.
Comment
This dispute highlights the importance of ensuring that a written agreement expressly and accurately reflects what services are to be provided and for what remuneration.
Where the scope of the services may change, then any extra-contractual work should be covered in a written document as an addendum to or variation of the original agreement.
